G.L. c. 156D, §§ 7.41, 7.42, 7.44, 14.30, 14.32; G.L. c. 156C, §§ 44, 56
Derivative actions and corporate dissolution in Massachusetts — universal demand, and no oppression ground
A claim in Massachusetts trial courts · Last verified August 26, 2026
Two related actions share this page: the derivative claim, brought by an owner on the corporation's behalf, and judicial dissolution, brought by an owner who wants out.
Both are narrower in Massachusetts than in most states, and for the same reason — the Legislature adopted the Model Business Corporation Act and then left pieces out. There is no futility exception to the demand requirement, and there is no oppression ground for dissolution.
The derivative action
What it is. A claim belonging to the corporation — a diverted opportunity, looted assets, excessive insider compensation, a breach of duty by directors — brought by a shareholder because the people who would normally sue are the people who did it.
The recovery belongs to the corporation, not to the shareholder who brought it. That is the defining feature, and it is why a minority owner frustrated by a freeze-out often finds this is not the claim they want.
Standing — § 7.41
The plaintiff must have been a shareholder at the time of the act complained of, or have acquired the shares by operation of law from someone who was, and must "fairly and adequately represent" the corporation's interests. Ownership must continue through the litigation.
Demand — § 7.42, and there is no futility exception
Section 7.42: "No shareholder may commence a derivative proceeding until: (1) a written demand has been made upon the corporation ...; and (2) 90 days have elapsed from the date the demand was made" — 120 days where the demand is submitted to a shareholder vote — "unless the shareholder has earlier been notified that the demand has been rejected by the corporation or irreparable injury to the corporation would result by waiting for the expiration of the 90-day period."
Massachusetts is a universal demand state. Unlike Delaware and most jurisdictions, there is no futility exception for a corporation. A shareholder cannot skip the demand by pleading that the board is conflicted, interested or complicit. The SJC settled this in Johnston v. Box, 453 Mass. 569 (2009).
The two escapes are narrow: an earlier rejection (which starts the clock immediately), and irreparable injury from waiting.
Write the demand carefully. It is the pleading that frames everything after it, and a demand that fails to identify the wrong and the relief sought gives the board an answer.
The board's response — § 7.44
A corporation may move to dismiss where a qualified group determines in good faith after a reasonable inquiry that the proceeding is not in the corporation's best interests. That group may be a majority of independent directors, a committee of independent directors appointed by them, or a court-appointed panel.
The court reviews the process, not the conclusion. Halebian v. Berv, 457 Mass. 620 (2010), frames the inquiry: whether the determining group was independent, whether the inquiry was reasonable, and whether the determination was in good faith. A shareholder attacking a special litigation committee attacks its composition and its process.
LLCs are different
For limited liability companies, the parallel provisions are G.L. c. 156C, §§ 56 and 57.
And a futility argument may survive there. Billings v. GTFM, LLC, 449 Mass. 281 (2007), indicates that the universal-demand rule adopted for corporations does not automatically govern LLCs — which is a meaningful difference for anyone choosing how to plead against an LLC's managers.
Judicial dissolution — § 14.30
Here is where Massachusetts departs most sharply from the model act, and where a minority owner is most often misadvised.
Section 14.30(2) allows the Superior Court to dissolve a corporation on a petition by shareholders holding not less than 40 per cent of the total combined voting power, if it is established that:
- the directors are deadlocked in management, the shareholders cannot break the deadlock, and irreparable injury to the corporation is threatened or being suffered; or
- the shareholders are deadlocked in voting power and have failed, for a period including at least two consecutive annual meeting dates, to elect successors to directors whose terms expired, and irreparable injury is threatened or being suffered.
Read what is not there. The Model Business Corporation Act includes grounds for dissolution where "the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent," and where corporate assets are being misapplied or wasted. Massachusetts omitted both.
And there is no statutory buyout. The model act's election-to-purchase provision, which lets a corporation buy out a petitioning shareholder in lieu of dissolution, was not adopted. Section 14.34 in the Massachusetts chapter is "Reorganization under a statute of the United States," which is a different thing entirely.
The consequences for a frozen-out minority owner are significant:
- 40 percent is a high threshold, and most freeze-out victims hold less;
- deadlock is not oppression — a controlling majority acting decisively is not deadlocked, and a minority owner who is being ignored has no § 14.30 case; and
- there is no statutory route to being bought out.
A receiver is available. Section 14.32 allows the appointment of a receiver or custodian in a dissolution proceeding, and § 14.31(c) allows one pendente lite — but the dissolution proceeding has to be properly grounded first.
LLC dissolution is broader. G.L. c. 156C, § 44 allows a court to decree dissolution "whenever it is not reasonably practicable to carry on its business in conformity with the certificate of organization or the operating agreement." That is a materially easier standard than corporate deadlock, and it is one reason the entity form matters enormously to a minority owner's options.
The real remedy for a frozen-out minority owner
Because § 14.30 offers so little, the Massachusetts remedy for oppression is common law, and it is strong — see breach of fiduciary duty.
Donahue v. Rodd Electrotype Co., 367 Mass. 578 (1975), imposes on close-corporation shareholders the duty of "utmost good faith and loyalty" that partners owe each other.
Wilkes v. Springside Nursing Home, Inc., 370 Mass. 842 (1976), gives the controlling group a legitimate-business-purpose defence, answerable by a less harmful practicable alternative.
Brodie v. Jordan, 447 Mass. 866 (2006), limits the remedy: a forced buyout that puts the minority in a better position than it would have occupied absent the wrong is error. The remedy restores the benefits the minority reasonably expected — it does not manufacture liquidity that never existed.
That trio, not chapter 156D, is where a Massachusetts freeze-out case lives.
How long you have to file
Three years for the underlying breach of fiduciary duty, under G.L. c. 260, § 2A, with the discovery rule and the tolling that a fiduciary's concealment produces.
No fixed period for a dissolution petition, which turns on a present condition.
The 90 days is the deadline that structures a derivative case.
What has to happen before you file
The written demand and the 90-day wait, for a corporate derivative claim — always.
Rule 23.1 particularity. Mass. R. Civ. P. 23.1 requires the complaint to allege with particularity the plaintiff's efforts to obtain the action desired from the directors, and the reasons for not obtaining it.
What the claim pays
Damages to the corporation, on a derivative claim — recovered by the corporation.
Fees from the fund, where the derivative action produced a substantial benefit for the corporation. This is the practical fee route in derivative litigation.
Dissolution and winding up, or the appointment of a receiver or custodian.
Damages to the individual owner, on a direct fiduciary claim — which is where a freeze-out victim recovers.
Which court
Superior Court, and in Suffolk County the Business Litigation Session, which handles most corporate governance disputes. Section 14.31 fixes venue for dissolution.
Common defenses
- No demand, or suit filed inside the 90 days — a complete answer for a corporation.
- A § 7.44 determination by an independent group after reasonable inquiry.
- The claim is derivative and was pleaded directly, or the reverse.
- The plaintiff lacks standing — not a shareholder at the time, or ownership not continuous.
- Under 40 percent, on a dissolution petition.
- No deadlock, which defeats § 14.30 however badly the majority behaved.
- The business judgment rule.
- Limitations.
What people get wrong
There is no futility exception for corporations. Demand is universal, and pleading that the board is hopelessly conflicted does not excuse it.
Massachusetts has no oppression ground for dissolution. The model act's illegal-oppressive- fraudulent and waste grounds were omitted.
There is no statutory buyout. Section 14.34 is about federal reorganisation, not an election to purchase.
Forty percent is a real threshold, and it excludes most minority owners.
LLCs are easier — a futility argument may survive, and § 44's "not reasonably practicable" standard is far more forgiving than corporate deadlock.
The oppression remedy is Donahue and Wilkes, not chapter 156D — and Brodie limits what it can deliver.
Where it came from
Massachusetts adopted the Model Business Corporation Act in 2004, replacing a corporate code that had grown for a century. Most of the model act came over intact. Two things did not.
Universal demand was a deliberate choice in favour of the model act's approach over Delaware's. The Delaware system asks courts to predict, at the pleading stage, whether a board could impartially consider a demand — an inquiry that consumes enormous judicial effort and produces inconsistent results. The model act's answer is to require the demand always and let the board's actual response be reviewed. It is simpler, and it is harder on plaintiffs.
The omitted dissolution grounds are the more consequential choice, and the reason is visible in the case law that preceded them. Massachusetts already had Donahue and Wilkes — a common-law fiduciary regime for close corporations that is among the most protective in the country. A statutory oppression ground would have layered a second remedy on top of one that already worked, and would have given a court the power to dissolve a functioning company on findings the common law addresses with damages instead.
So the statute handles deadlock — the case where the company cannot function at all — and the common law handles oppression. A practitioner who reaches for the model act's familiar oppression ground will not find it, and a minority owner who needs a remedy will find it in a 1975 case rather than in the corporations code.
Common questions
Do I have to make a demand before filing a derivative suit in Massachusetts?
Yes, always, for a corporation. There is no futility exception. You must make a written demand and wait 90 days unless it is rejected earlier or waiting would cause irreparable injury.
Can I get a company dissolved because the majority is freezing me out?
Not under G.L. c. 156D § 14.30. It requires 40 percent of the voting power and deadlock, and Massachusetts omitted the oppression and waste grounds other states have.
Can a court order the majority to buy my shares?
Not under the corporations statute — Massachusetts did not adopt the election-to-purchase provision. A remedy may be available on a common-law fiduciary duty claim, limited by Brodie v. Jordan.
Is an LLC different?
Yes. A futility argument may survive for LLCs, and G.L. c. 156C § 44 allows dissolution whenever it is not reasonably practicable to carry on the business under the operating agreement.
Who gets the money in a derivative case?
The corporation. A successful plaintiff may recover fees from the fund the action created.
What is my actual claim as a squeezed-out minority owner?
Breach of fiduciary duty under Donahue and Wilkes, brought directly rather than derivatively.